Jason Stipp: I'm Jason Stipp for Morningstar. We're reporting from the 2010 Morningstar Investment Conference. I'm here with Jason Wolf from Third Avenue Real Estate Value. He is going to tell us a little bit about the fund's positioning today, and where they are finding some opportunity. Thanks for joining me, Jason.

Jason Wolf: Thanks, Jason. It's good to be here.

Stipp: First question for you. Our analyst wrote about your fund in February and said that you folks have taken some chips off the table at that time. Obviously the market since February has been a bit volatile, and I'm just wondering how you'd characterize the positioning of the portfolio today?

Wolf: Well, March 2009 to essentially April 2010 equity markets, specifically the real estate securities have been sort of on an upward trajectory. And what we decided to do is start taking chips of the table and raise the cash, and we've got all the way up to about 25% of cash and cash equivalents through the end of April.

And the May disruption starting with the European problem and Chinese tightening measures and mixed economic data in the United States, it has allowed us to put together a basket of stocks and take advantage of some of the market volatility in the sector.

Stipp: So you have been putting some cash back to work recently. One of the things that I know that you folks are known for is looking across the capital structure, so – equities, but also debt and you have been invested in debt in the past. Are you finding any patterns and where you are seeing opportunities, now speaking of the debt structure or the capital structure generally? Or is it still sort of wide ranging and opportunities here and opportunities there?

Wolf: In the '08, early '09 period where the financial crisis really led to some forced selling, we were heavily active in buying some debt securities of U.S. REITs and put a lot of money to work during that time and I would characterize our fixed-income bucket in our portfolio as something that we take advantage of opportunities, such as forced selling and things of that nature where we can get equity-like returns.

We are not seeing that today. There has generally been a flood of cash into the bond market, and that's led to spreads tightening and yields declining to make them not that attractive. So, what we're looking at today is one-off private investments in distressed, maybe, opportunities that we could take something through a bankruptcy process.

Stipp: Picking up on the first question that you had seen some more opportunities, are there any general trends you can speak of where you are seeing some of the best values today and where you have really focused your attention?

Wolf: Obviously, the macro creates the micro for us. We tend to sit and wait and hold the cash until some event happens and obviously the external events that have occurred in the macro level have opened up an opportunity set particularly in Continental Europe, which we have never had exposure, and we have made some startup positions there, which we find attractive.

Obviously, we're looking for financial positions of companies that are very strong, with the ability to make it through any cyclical downturns. We're long-term investors, trying to buying stocks that are relatively cheap, and in the United States we're starting to look into the homebuilders. They're down 30% since the early part of May and start to look attractive.

Everything we do has a problem and obviously the short-term issues with the housing market and the expiration of the tax credits has created an interesting opportunity to buy some really well-financed, well-managed businesses.

Stipp: Just a quick follow-up for you on that front, then, what's generally a time horizon? Obviously if you are going in when the market has some disruptions, there are some jitters, you may need to hold for a while until that plays out. How long are you thinking when you're going into some of these positions you thought you might be holding them?

Wolf: Obviously, when we made the bond investments in the first quarter of '09 and late '08, we thought this was going to be a three- to five-year type deal before capital markets restarted and these bonds reflected intrinsic value. And so, it's usually a three to five year, but sometimes it happens a lot sooner than we anticipate it.

Stipp: Certainly the markets have been a lot more volatile, so it seems like what you think originally may change as things play out.